It’s hard to come up with an interesting title every week so that you wouldn’t spam out the article before the first paragraph ends. However, even if I have your attention to read on, I have to admit that the current topic is one that I don’t fully understand myself. It is the relationship between the interest rate on your bank deposit and the long-term effect it has on a country’s economy. Huh?

The Bank of Japan, Japan’s central bank and the counterpart of the Federal Reserve Board in the US, this week announced that the interest a customer gets on his deposit would be a -0.1%. Yes, a negative 0.1%. What it means is that, not only are you the customer not getting any interest income from the bank, you have to pay them a storage fee of 0.1% for parking your money there. If this sounds unreasonable and shocking to you Japan is not the only country doing it. Sweden’s central bank is “paying” -0.2% on your deposit, Denmark and Switzerland less than -0.6%.

The general idea for a central bank to charge for deposits, instead of paying for them, is obviously to discourage saving and encourage consumer spending. It is usually implemented in conjunction with its fight against deflation too, so do traditional fiscal policies go.

We in America don’t have this issue of negative interest. The last time I checked, my friendly bank was paying me 0.10% on my deposits. It’s close to nothing, but symbolically it means something. I don’t foresee that our central bank the Federal Reserve will mandate a negative rate soon. Our federal government is already doing a very good job of borrowing money to stimulate the economy. As a matter of fact, Uncle Sam just recently rang up a total cumulative national debt of 19 trillion US dollars. That’s US$19,000,000,000,000. Divide it by the American population of 320 million people – that’s including the little one who was born a minute ago, it’s about US$60,000 of debt per person. Welcome to America, baby!

I bravely and stupidly talked about this subject not with the hope of telling you something new. I just wanted to make you aware that there are aliens called “central bankers” living on Planet Earth whose sometimes logical and other times whimsical decisions can affect our lives very fast and very dramatically. As a selfish half-retiring consumer, what I would like to see is this. What if banks start paying borrowers money on their loans as “negative interest” so that the latter can go out and spend more and stimulate the deflationary economy? Can I start refinancing the mortgage on my house now?

*** The End ***

 

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